Popejoy’s Call for State-Backed Loans Draws Mixed Reactions

State lawmakers gave mixed reviews Wednesday to Orange County Chief Executive Officer William J. Popejoy’s call for the state to guarantee loans the county needs to recover from its financial disaster.

Popejoy predicted the idea would prompt controversy in the state Capitol, and many officials didn’t disappoint.

“We’re not going to guarantee those,” roared Sen. Quentin Kopp (I-San Francisco), who sits on the Senate special committee investigating the bankruptcy. “Orange County hasn’t exhausted all its remedies. Why should I guarantee something with my constituents’ tax money when Orange County doesn’t even want to discuss raising revenue in the county?”

But some state officials involved in the county’s recovery efforts suggested Popejoy’s proposal, which included a vow to offer county assets as collateral, seemed a good starting point for discussing how the state can help. By getting a state guarantee, the county would be able to tap into a better credit rating and lower interest rates, sharply reducing the cost of any loans it needs to recover from $1.7 billion in investment losses last year.

“I’ve always thought the state ought to be open to helping bridge the financial gap for Orange County as long as there’s a good plan in place to bring the county back to financial stability,” said Sen. Patrick Johnston (D-Stockton). “As part of an overall game plan . . . the state ought to be prepared to assume the role of parent signing for the auto loan of an adult child.”

“It’s entirely appropriate, as long as we’re not talking about dipping into state coffers,” said Scott Johnson, chief counsel to Sen. William A. Craven (R-Oceanside), who co-chairs the special committee investigating the bankruptcy. “I certainly wouldn’t call a bridge loan that is appropriately collateralized a bailout.”

In the governor’s office, meanwhile, officials said they would not jump to judgment until they discuss the idea with Orange County officials. Gov. Pete Wilson has already embraced a plan that would allow the state to step in and intercept Orange County tax revenue, if necessary, to pay off loans, thus assuaging the concerns of Wall Street investors.

“It’s not clear what additional proposal the county or Mr. Popejoy has,” said Sean Walsh, the governor’s spokesman.

Other state officials expressed serious qualms about Popejoy’s proposal, which was offered during a Board of Supervisors meeting Tuesday night. Some suggested the state should offer loan guarantees only if it assumes a more central role in Orange County’s recovery.

Sen. Lucy Killea (I-San Diego), who also co-chairs the special committee and has authored a bill that would strip the Board of Supervisors of its fiscal responsibilities, said, “If they’re in this deep a hole, what assurances do we have that they’re going to work their way out of it?”